Celebrate our independence with the ‘08 housing bailout bill
Maybe the politicians think that with everyone getting ready for 4th or July that the news of a sleight-of-hand bailout bill won’t raise too many eyebrows. Maybe they’re wrong (again). With the holiday fast approaching legislators in both the House and Senate are getting ready to put through the mother of all mortgage bail out bills in an attempt to stave off the further decimation of the housing market.
What a surprise. All the rhetoric from last summer goes out the window as the market worsens and votes become more precious. Legislators have decided to mortgage each of our futures with the tax of the ignorant and greedy.
The bill, called “the most sweeping mortgage reform since the New Deal,” has a ton of bail out provisions loaded in - giving lenders and borrowers the ability to just pass over the risk of bad mortgage debts to Fannie, Freddie and the Federal Housing Administration. In otherwords, the taxpayers of the United States of America.
Your bail out bill grab bag includes:
- permanent conventional loan limit increases from $417,000 to $625,000
- tax credit for first time homebuyers for $8k or 10% of the home’s value (for unoccupied homes)
- $150 million in foreclosure counseling funds
- “stricter” guidelines on lender disclosure of ARM loans
- up to $900 million for the Affordable Housing Trust Fund to be financed by fees from Fannie and Freddie
- rescue refinancing which allows distressed borrowers to refinance in to a federally guaranteed 30-year fixed loan at 85% LTV from wherever they sit currently with their lender
Take a look at that last one. Even with the requirements attached to it (lender approval, full-doc income, etc.) this is the definition of a bail out. Wholesale debt forgiveness. The lender has to eat the cramdown or foreclose; but the simple fact is that the government is taking all the folks who borrowed too much, bet big on real estate and racked up mortgage debt and saying “don’t worry about it, we’ve got this one.”
Thanks Uncle Sam, but put down the check and let’s divide this up like grown-ups. I’ll pay for my mistakes - you pay for yours - and let’s call it a day.
From the New York Times:
The centerpiece of the Senate package is a rescue-refinancing plan aimed at stemming the tide of more than 8,000 new foreclosures a day that lenders are filing across the country. The plan would allow distressed borrowers and their lenders to stem losses by allowing qualified owners to refinance into more affordable, 30-year fixed-rate loans with a federal guarantee.
The legislation would also provide benefits for first-time buyers, who would receive a refundable tax credit of up to $8,000, or 10 percent of the value of a home, on purchases of unoccupied housing.
As part of a regulatory overhaul of Fannie Mae and Freddie Mac, the mortgage finance giants, the bill would permanently increase to $625,000, from $417,000, the limit on loans they can purchase from lenders in expensive housing markets, making it easier for borrowers to obtain mortgages at discounted rates. Despite a presidential veto threat, the package received overwhelming bipartisan support, clearing by 83 to 9 a crucial procedural vote in the Senate on Tuesday morning.
Final passage of the bill was snagged temporarily in the Senate Tuesday evening because of a fight over renewable energy tax credits. Still, major supporters of the bill said they hoped it would be completed before for the holiday.
“There’s a great desire to act,” said Representative Barney Frank, Democrat of Massachusetts, the bill’s main author in the House. “We’re just not there yet.”
The bill would provide $150 million to expand counseling for borrowers to prevent foreclosure and would establish stricter disclosure rules to require lenders to make plain the maximum monthly payment for a borrower with an adjustable rate loan.
The bill also establishes an Affordable Housing Trust Fund, to be financed by $500 million to $900 million in fees from Fannie Mae and Freddie Mac. The fund will cover any expenses related to the foreclosure rescue plan for three years, and will be used to create affordable rental housing.
Under the refinancing plan, only borrowers seeking to remain in their primary home would be eligible. Lenders would first have to agree to cut the principal balance of loans to roughly 85 percent of each property’s current value.